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Innovation Update is published by Innovaro (www.innovaro.com), Europe’s leading innovation insight and consulting firm working with organizations to help improve innovation performance and impact. In their June, 2006 issue (below), Innovaro recognizes Aplicare (along with Samsung) as a true Value Innovator - with its Aplicare Advantage™ Dressing Change System™.

Welcome to the June Innovation Update which, with a briefing co-authored in partnership with US-based Value Innovations Inc, looks at the increasingly popular topic of value innovation:

Innovation Briefing: Value Innovation

Many organisations are using innovation to drive organic growth: Quicker access to new technologies, outsourcing non-strategic elements, collaboration with new partners, have all been used to serve ever more demanding customers.  Several leading companies have been using value-driven innovation as a key source of sustainable advantage. Some such as Virgin have achieved this from a core cultural heritage; others such as RyanAir and NetJets through following or leading changes in market forces. However several companies such as Accor, Samsung and Aplicare have embraced an evolving ‘value innovation’ approach as a core part of their strategic toolkit and, in doing so, have also realised significant gains. How, where, and why this has been achieved may provide useful lessons for all.

Context:
The Virgin Group has, largely from its inception, ‘championed the customer’ in the products and services it provides and how these are delivered: Whether this be convenient, pay-as-you-go mobile telephony through Virgin Mobile, high-value business class travel through Virgin Atlantic or easy to understand, reliable financial products through Virgin Money, a common element that the Virgin brand has offered the world has been exceptional value for the customer – albeit simultaneously profitable for the provider. As Virgin has continually entered new markets, sometimes more successfully than others, providing value has often been linked directly to Richard Branson’s leadership or a corresponding cultural norm within the organisation. Whichever, numerous would-be or incumbent competitors have not been able to replicate it and so have lost market share and customers. Virgin’s USP has become a passion for value and, as this is ingrained throughout the organisation, many would see that it has been a key driver of success – and one than cannot be easily copied.

Several companies have delivered value in providing new variations of opportunities that have emerged as markets have evolved. In the mass-market airline business RyanAir in Europe, and Frontier and JetBlue in the US, all saw SouthWest Airlines making a mark in low-cost mass economy air travel.  Although Southwest has about the same number of aircraft as United Airlines, it operates over 3,000 flights a day, double that of United.  Moreover, Southwest has reported annual profits for 31 straight years. RyanAir, Frontier, JetBlue and others have adopted and adapted Southwest’s approach and strategies. They have successfully acted as catalysts for change, have created largely low-cost business models and have successfully exploited them wherever they can. In the case of RyanAir, this has driven profitable growth to a point where its market capitalisation notably eclipsed that of British Airways. Although a wide range of other would-be operators have tried to emulate this success, many of those seeking to compete in the same markets have failed to gain the same advantages either through being late into the game or having insufficient scale to operate in a sustainable manner.

Likewise, at the other end of the airline market,  NetJets has re-invented the value equation of point-to-point business travel through providing all the convenience and flexibility of a corporate jet with none of the responsibilities of hiring pilots and scheduling maintenance - and all for a price that is only a slight premium on standard business class. With a fleet of over 500 aircraft now in operation serving 140 countries, NetJets’ success has led to incumbent airlines trying to halt the drop in corporate customers by introducing business class only flights and new start-ups such as MaxJet and Eos trying their own variation. However as both the first value-changer in this high-end of the market and also the first to achieve the necessary scale to fulfil a wide range of corporate travel demands, NetJets clearly have the current advantage.

Value Innovation as an Approach:
While the above organisations have inherently innovated around value primarily from strategic and cultural perspectives, other companies are using a more process-driven approach. Following on from the initial 1997 HBR article and the subsequent best-seller “Blue Ocean Strategy”, both authored by W. Chan Kim and Renee Mauborgne of INSEAD, several companies have been successfully innovating around value through following what has become an increasingly recognised process of “value innovation”. As in the example of hotel company Accor highlighted in the original HBR article, by first gaining a clear view of what differentiating features of a product or service are really important to their customers, and then identifying how and where the associated value curve can be changed to exceed expectations in key ‘purchase decision influencing’ areas, some companies are able to fundamentally change the value proposition they are providing: They are better able to match customers key ‘real’ rather than ‘perceived’ needs to the products or services they are providing and so push the value boundaries, or even reinvent them, with significant financial benefit to all.

The Value Innovation process has recently been evolved to its next level of evolution by forty companies of the Industrial Research Institute in the US and, having been adopted by several lead users, is now having even greater impact. By first putting the options for value innovation within the context of a company’s culture and the behaviour of its stakeholders, the capacity to value-innovate is being better highlighted. Then, through following five key steps all linked to exploiting solid consumer insight, some organisations have been able to consistently deliver exceptional value to the most important areas in the value chain. Two current examples of this approach, and beneficiaries of the associated impacts that it can deliver, are Samsung Electronics and Aplicare:

Samsung Electronics:
Since its strategic decision to become a ‘rule breaker’ and create a corporate culture of ‘innovation  is everything’ in 1993, Samsung Electronics has successfully driven itself up-market making a world-leading shift from innovation follower to innovation leader. With annual revenues of $60bn, recent profits of $10bn, a market value of over $100bn and world leadership in key technologies such as LCD displays and DRAM, this Korean organisation is now consistently seen as the innovation leader in the consumer electronics sector. In achieving its ambition to become the world’s best company, Vice Chairman Jun says, “it’s all about innovation – in every aspect of our business, we must innovate continuously on six parallel tracks”. These being:

• Product Innovation to deliver a continual stream of stylish, innovative products that deliver unexpected delight;
• Technology Innovation to quickly develop and retain key technologies and core R&D investments that separates the company from its competitors;
• Marketing Innovation to create fresh approaches at every level of customer contact, continue to build the brand and drive sales;
• Cost Innovation to control costs in ways that complement and encourage innovation and increase market impact worldwide;
• Organizational Culture Innovation  to create work environments where everyone shares the freedom to learn from mistakes and succeed; and
• Global Management Innovation to develop highly localized product strategies that link strong local insight and key market presence with an ability to accelerate the decision making process and rapidly seize major opportunities worldwide.

To help identify the core opportunities to out-compete its peers, in the late nineties, Samsung opened a dedicated Value Innovation Program Center in Suwong. This is an integrated five floor facility where value innovation is taught as a process and applied across many product lines: While the second, third and fourth floors are available for project teams to work on value innovation projects, ranging from strategy development to new business models to new products, the first floor is devoted to value innovation training and the fifth floor is a mini-hotel where teams often stay until the project is finished! Identifying and exploiting value innovation opportunities across all six innovation tracks, this facility has fast become a key source of new concepts that have helped grow market share and margins:

Key products from Samsung’s Value Innovation Program have included The SGH T-100 wireless phone which sold over ten million units, a 5’ plasma display, which is currently in development; the world’s first 40” LCD TV, that represented breakthroughs in size and wide-angle viewing; and the SPH-E3200 digital camera phone which had no antenna. All of these products have changed the value curve for the most important customer in their respective markets and are making significant contribution to Samsung’s increasing revenues, margins and market share.

Aplicare Inc:
Aplicare, Inc. is a market leader in the formulation, production, and packaging of topical antiseptic and personal care products for use in the US professional health care setting. It is a privately held company with annual sales of  <$100 m whose customers include, doctor’s offices, home healthcare agencies, hospitals, health care distributors, procedural kit and tray manufacturers and surgi-centers. In 2004, in order to drive organic growth and improve gross margins, Aplicare made a strategic decision to forward integrate into kit manufacturing in a unique and defensible way.

To achieve this, Aplicare focused the Value Innovation methodology on a commodity dressing change kit, produced by at least six manufacturers – all focused on meeting the core low cost needs of purchasing agents. The president of Aplicare wanted a breakthrough product that was unique and defensible. The product development team first addressed the question, “Who is the most important customer in the value chain?”  They realized that the most important customer was not the purchasing agent but the nurse and so set about identifying the problems nurses experience using existing products.  The team developed a new Value Curve for the nurse and identified new elements of performance.  This led to a dramatic new design they call the “Aplicare Advantage™ Dressing Change System™”. The company introduced their new “Advantage” at a nursing convention in early May 2006, and the response from end users and distributors has been “phenomenal.” Priced at a premium to current dressing change kits, the value driven Aplicare Advantage System is drawing accolades form health care professionals, buyers and competitors and demonstrates that it is possible to transform a commodity into a breakthrough.

Conclusion:

Samsung and Aplicare both highlight that, when the market opportunity, corporate capability and core customer insights are aligned, companies which may not be naturally culturally predisposed to innovating through the value chain, can nevertheless use a disciplined approach to identify and deliver value innovating concepts. Looking across these and other Value Innovation leaders some common characteristics are evident: 

• CEOs champion innovation and their personality and style influence what the companies do and how they do it;
• Company growth strategy and business models are clear to all employees
• Decisions are made quickly with little dithering;
• Cycle times from concept to finished business model, product or service are being reduced to weeks from months and years;
• The organisational culture and working environment both support risk taking with innovation permeating the company;
• Ideas are sought after, and welcomed from anywhere – within and outside the firm; and
• Value Innovation can occur anywhere, at any level, at any time

Now that Value Innovation has evolved into a more sophisticated and reliable approach, able to help companies innovate better and differently, the capability in using the approach is being seen be some as a key tool in their strategic planning process both for the short and long terms. More organisations are seeking to better understand the value innovation approach, link it to key differentiating consumer insights and so identify market-breaking concepts. For many companies, there is an increasing recognition that if you don’t value innovate in your space, someone else will.

More Information:

To discuss this topic further contact: insight@innovaro.com

For more information on Value Innovations Inc: www.valueinnovations.com

To buy Blue Ocean Strategy from Amazon: Blue Ocean Strategy

References:

1 W Chan Kim and Renee Mauborgne, “Value Innovation: The Strategic Logic of High Growth” Harvard Business Review, January-February, 1997, pp 103-112

2 Tom Dillon, Richard K. Lee and David Matheson, “Value Innovation:  Passport to Wealth Creation”, Research*Technology Management, March- April 2005, pp22-36

Innovation Talk: Disruptive Innovation

Last Thursday the Royal Society of Arts and Innovaro hosted an evening discussion on the impact, focus and alternative forms of disruptive innovation. Leading speakers from Shell, the BBC and 3i shared their varied perspectives and this was followed by an interesting Q&A session. An audio-file of the evening is now available on the RSA website and the text of the event will be added shortly.

To download the audio-file:

http://www.thersa.org.uk/audio/index.asp

For a perspective on the varied forms of disruptive innovation occurring today:

Disruptive Innovators

Innovation Reviews: Recent Publications

Here are two recent innovation- related books that may be of interest:

Smartsourcing
Subtitled ‘Driving Innovation and Growth through Outsourcing’ this is a timely and informed perspective on how some leading companies are using the evident opportunities from off-shoring and out-sourcing to deliver higher levels of innovation. Looking at how companies are variously cutting innovation costs, growing through moving operations and increasing innovation efficiency, this is a good companion to the 2005 FT book of the year, ‘The World is Flat’ as it moves the innovation and globalisation overlap a step further. Staring with a review of the forces at play in and around the outsourcing trends, it goes on to first examine where source of innovation advantage are currently being gained and then to explore some potential future and even greater impacts. With a strong focus on the R&D dimension, this book does not just stop at the traditional product view but interestingly also looks at some service innovation and, amongst the varied organisations used as examples, it includes GE’s India based GE Capital International Services business which led the way in process innovation.

For further information:

Smartsourcing
The World is Flat

The Dynamics of Innovation and Intrafirm Networks
This academic authored book is based on extensive analysis of two Dutch knowledge intensive industries, multimedia and pharmaceutical biotechnology. Using this as a foundation, it draws a number of interesting perspectives on how the two dynamics of competence and governance influence innovation and the associated networks between leading firms and their supply base. Although essentially an extended thesis, and hence not exactly a light read, the examination of the interconnection between these two dynamics provides some interesting insights as it brings together an analysis of the varied types of low and high density networks that are adopted by organisations with the influence of the institutions which variously choreograph, lead, facilitate or fund networks.
For further information:

The Dynamics of Innovation and Intrafirm Networks

To view summaries of books reviewed over the past four years:

www.innovaro.com/publications_reviews.html

Innovation Events: Forthcoming Conferences

Here is a selection of innovation related events coming up in the next few months:

13-14 July – Boulder, Colorado, US: Mastering Value Innovation
In conjunction with the Leeds School of Business at the University of Colorado, Value Innovations Inc are running a two day workshop looking at how the Value Innovation approach is having impact and highlighting varied case studies including Samsung, Dyson, .SouthWest Airlines, Virgin, and P&G
For more information: http://leeds.colorado.edu/executive/interior.aspx?id=252,279,1272,2047

25-27 July – Stanford University: The Innovation Summit @ Stanford
This major meeting opportunity for innovators in Silicon Valley is again taking place at Stanford. It will feature the usual high tech mix of speakers and provide the opportunity to network with the top private company innovators as rated by Always On.
For more information: http://www.alwayson-network.com/ao2006/?t_ref=CM120505

22-25 October – Vermont, US: DMI International Conference
The Design Management Institute’s annual conference is this year focused on the topic of ‘Measuring and Building Design's Role in Achieving Business Success’ which as more and more companies look the the better and more strategic use of design as a source of innovation advantage has timely relevance.
For more information: http://www.dmi.org/dmi/html/conference/annual06/annual.htm

23-24 October – Atlanta, Georgia: PDMA Annual Conference
This year’s international conference of the Product Development and Management Association is taking place in Atlanta. Celebrating 30 years, as always it features a very rich selection of speakers and this year the focus is on competing in the global marketplace.
For more information: http://www.globalexec.com/pdma2006/

Innovation Feedback: What you think

If you would like to provide feedback on any of the issues included above please e-mail us on update@innovaro.com

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Innovation Update is published by Innovaro, Europe’s leading innovation insight and consulting firm working with organisations to help improve innovation performance and impact.

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